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Gold: A Thousand Dollar Rally?"

Sales and profits growth for key Asian gold jewellers continues to set the stage for an imminent and massive mining stocks rally.

This is the fabulous Chow Tai Fook chart.

A major breakout to the upside is in play, and where Chinese jewellers go on the price grid, Western miners are likely to follow.

Some of the GDX component stocks are beginning to join what I term the “bull era upside fun” even though bullion has yet to prove itself with a three-day close over $1370.

This is the daily gold chart. Gold is coiled beautifully inside a drifting rectangle formation, and there’s already been one attempt to break out to the upside.

Most component stocks of the US stock market indexes look technically horrific. A move for gold up to the “promised land” of $1450+ is likely to be fuelled by both love and fear trade factors.

That’s because the next rate hike and quantitative tightening ramp-up is likely to occur against a background of ever-stronger jewellery demand coming from both China and India.

Gold cycle expert Erik Hadik notes that many American wars and disasters have occurred around the date of April 19. It’s unknown if there will be any “blowback” from the latest US military adventurism in Syria, but from a cyclical perspective, it could happen.

The Indian gold market has largely recovered from the ludicrous government policy attacks, and demand is strengthening in what appears to be a permanent trend.

With both Chinese and Indian demand looking very solid, all gold needs now to move it towards $1450 is a tiny boost of investment demand from Western fear traders.

I don’t think most analysts and media people are listening carefully enough to Bill Dudley and other key players at the Fed.

They are starting to talk about what could make the Fed go from quarterly to monthly decision making for rate hikes. Bill casually mentions that stronger than expected inflation could push the Fed to do five or six rates hikes this year. That inflation hasn’t happened yet, but the labour market is still tightening and inflationary tariffs from Trump are likely on the horizon.

It’s important for investors to understand that most of the US stock market’s gains have been fuelled by corporate stock buyback programs. Those programs were made possible by QE and ultra-low interest rates. Just two or three more hikes this year could be enough to end those buybacks.

That would essentially create a “lights out” moment for stock market investors. Many of them bought their stocks late in the business cycle. They ignored the cycle because they hoped Trump would somehow recreate the 1950s US economy for them, even though America’s demographics are now almost the exact opposite of what they were in the 1950s.

In India, the population is gargantuan and the demographics of that population are similar to that of 1950s America… with the added bonus being that these citizens are obsessed with gold.

A recession in India now is essentially defined as 6% real GDP growth and 8% interest rates. In America, 8% interest rates would probably create minus 10% GDP and send the Dow Jones Industrial Average crashing down to under 1000. The bottom line: There are 3 billion new sheriffs in town, and they are all living in China and India, eager to buy more gold!

Globally, there are literally trillions of dollars invested in government bonds that still have negative interest rates. A few more hikes and accelerated QT from the Fed could crush investors in these bonds and create a much bigger panic in the stock market than the one that has already occurred this year.

Inflationary tariffs from Trump, an end to corporate buybacks, and the tightest labour market in America since the 1970s are poised to end the Fed’s interest rate policy of gradualism.

I’m now predicting that within six months the Fed will begin re-evaluating its quarterly hiking policy and will almost certainly replace it with a month by month evaluation policy for 2019.

I’m also predicting the Fed will begin “hawk talk” about a fifty basis point hike then, and that Powell will stay the course on QT. These events and processes should combine to create a series of major stock and bond market declines in America.

The world’s only true safe havens are gold and silver bullion, and they will see their lustre restored. I’m also predicting that millions of Chinese and Indian gold market gamblers will begin betting on the demise of American markets and government as the Fed tightens ever-more aggressively. These gamblers will place their main bets by buying vast amounts of gold.

Bond market “supremo” and GDX ETF enthusiast Jeff Gundlach has talked about gold being poised for a “thousand-dollar rally”. I fully expect Chindian gamblers and an imminent hawkish ramp-up in Fed policy to make his predicted rally happen.

We can all dream of what a thousand-dollar rally to $2400 would do for GDX, and for its component stocks that most gold bugs own. For now, investors need to satisfy themselves with the solid staircase-style rally that is in play.

Gold is more vulnerable than GDX in the short term, and I’ve been an eager gold stocks buyer in the entire $23 to $18 GDX price area. I have enough stock and my focus now is call options. That’s because a three-day close above $1370 for gold now appears imminent. Holding 70% calls and 30% puts on gold stocks is probably an ideal way for gold market gamblers to get positioned. I don’t gamble a lot, but I do gamble, and this gamble appears to be a very good one! The puts can be covered if gold trades at $1320 - $1280 and more calls can be added there. Whether gold bugs are conservative, moderate, or aggressive, a major opportunity appears to be at hand in the precious metals markets, and it’s time for action!

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Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form. Giving clarity of each point and saving valuable reading time.

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Stewart Thomson is president of Graceland Investment Management (Cayman) Ltd. Stewart was a very good English literature student, which helped him develop a unique way of communicating his investment ideas. He developed the “PGEN”, which is a unique capital allocation program. It is designed to allow investors of any size to mimic the action of the banks. Stewart owns GU Trader, which is a unique gold futures/ETF trading service, which closes out all trades by 5pm each day. High net worth individuals around the world follow Stewart on a daily basis. Website: www.gracelandupdates.com.